Joestradamus Looks Into the MedTech Future
We’re rolling into 2024 after a volatile few years for the MedTech market, so what are the predictions for the year ahead? I’ve been looking into my FloodGate-green crystal ball and have a few insights to share:
To understand what the MedTech market will be like in 2024, we need to look back to the three years we just experienced.
Right at the end of the pandemic, we saw massive, pent-up demand fueled by cheap, sometimes free money drive up this demand in all markets. This included capital markets with a whopping $800 Billion in VC exit value in 2021 which drove an unprecedented “frothiness” in hiring from MedTech, to hospitals, to main street. As we know, this demand was not all good: with a post-pandemic snarled supply chain we saw rapid price increases for all materials.
- We saw repercussions of the drastic increase in raw material that, unlike other industries, due to GPO contracts and reimbursement fee schedules, MedTech manufacturers couldn’t pass on the price increase.
- The rapidly increasing labor cost hit already slim hospital margins who were coming off COVID payments, while the elective surgery flow had not yet rebounded, causing hospital systems to fall significantly into the red; the nation’s largest provider, Kaiser Permanente, went from an $8.1 B profit in 21 to a $4.5 B loss in 2022. Medtech also saw the salary run-up: we recorded our largest-ever jump in our Salary Guide with an average increase of 17%.
3. With this rapidly increasing inflation already impacting demand, Jerome Powell’s Fed instituted its most restrictive monetary policy since Paul Volker, moving interest rates four points in as many months.
The three impacts of reduced margins for MedTech providers, lack of willingness to purchase new product by cash-strapped hospitals, and the premium on capital meant that by the beginning of 2023, MedTech manufacturers, whose investors were not happy with their quarterly reports, started to adjust the only area they could: headcount. This resulted in 20,000 people being laid off from Phillips, Medtronic, and 3M alone. Even the reliable MedTech startup engine sputtered: with cash already at a premium, it was exacerbated by the collapse of SVB, First Republic, and Signature, while at the same time, capital was siphoned off to invest in the blockbuster GLP-1 drugs.
Okay, I’ll stop being a Debby Downer about the past–what will 2024 look like? Well, let’s look at the downward pressures that we just articulated:
- It looks like the Fed has learned a lot since the early 80s and is on approach for a soft landing with inflation and interest rates starting to mitigate.
- The combination of price and COGS/labor reduction means that both Hospitals and MedTech manufacturers are heading back to traditional margins.
The investment community, along with the cost of capital, is starting to add sips of capital-fuel back into the sputtering start-up engine
This combined with the fact that our consumption of Healthcare per capita and total consumption has continued to climb by 4.8% with the rest of the economy, cooling capital will come back to MedTech’s more predictable returns.
Therefore, I predict that the volatility will abate with a return to much-appreciated normalcy in the rate of hiring. But with employment still at historical highs and many candidates shell-shocked from 2022-23, it will take more to attract the best of the best.
I’m no Nostradamus, but these predictions could mean that you’ll need an industry-expert talent advisor on your side to help you navigate your MedTech growth and hiring needs. If hiring is in your cards, let’s step into the future together and Improve Lives by Uniting Great People with Great Companies.
Overall, my crystal ball projects a welcome, albeit slow return to normalcy after three-and-a-half years of total volatility, and I hope these insights give you the encouragement you need as we step into 2024.
By the way, for an extra peek into the hiring trends we’re seeing this year, check out FloodGate Medical’s 2024 Compensation Guide. Let me know what you’re seeing on the MedTech horizon, and may you have a prosperous New Year!